Travelers 2010 Annual Report Download - page 135

of the Brazilian Reais prior to the closing of the transaction, the Company entered into a foreign
currency option contract on February 7, 2011 in the notional amount of R$635 million which expires on
March 31, 2011. The joint venture transaction is subject to customary closing conditions and is expected
to be finalized in the first half of 2011.
Dividend Availability
The Company’s principal insurance subsidiaries are domiciled in the state of Connecticut. The
insurance holding company laws of Connecticut applicable to the Company’s subsidiaries requires
notice to, and approval by, the state insurance commissioner for the declaration or payment of any
dividend that, together with other distributions made within the preceding twelve months, exceeds the
greater of 10% of the insurer’s capital and surplus as of the preceding December 31, or the insurer’s
net income for the twelve-month period ending the preceding December 31, in each case determined in
accordance with statutory accounting practices and by state regulation. This declaration or payment is
further limited by adjusted unassigned surplus, as determined in accordance with statutory accounting
practices.
The insurance holding company laws of other states in which the Company’s subsidiaries are
domiciled generally contain similar, although in some instances somewhat more restrictive, limitations
on the payment of dividends. A maximum of $3.61 billion is available by the end of 2011 for such
dividends without prior approval of the Connecticut Insurance Department. The Company may choose
to accelerate the timing within 2011 and/or increase the amount of dividends from its insurance
subsidiaries in 2011, which could result in certain dividends being subject to approval by the
Connecticut Insurance Department. The holding company received $6.59 billion of dividends from its
domestic insurance subsidiaries in 2010, including $5.26 billion of dividends that were subject to
regulatory approval, primarily due to the Company’s request for the accelerated timing of payment.
Risk-Based Capital
The NAIC adopted RBC requirements for property casualty companies to be used as minimum
capital requirements by the NAIC and states to identify companies that merit further regulatory action.
The formulas have not been designed to differentiate among adequately capitalized companies that
operate with levels of capital higher than RBC requirements. Therefore, it is inappropriate and
ineffective to use the formulas to rate or to rank these companies. At December 31, 2010, all of the
Company’s insurance subsidiaries had adjusted capital in excess of amounts requiring any company or
regulatory action.
Off-Balance Sheet Arrangements
The Company has entered into certain contingent obligations for guarantees related to letters of
credit, issuance of debt securities, certain investments, third-party loans related to certain investments
and various indemnifications, including those related to the sale of business entities. See note 15 of
notes to the Company’s consolidated financial statements. The Company does not expect these
arrangements to have a material effect on the Company’s financial position, changes in financial
position, revenues and expenses, results of operations, liquidity, capital expenditures or capital
resources.
CRITICAL ACCOUNTING ESTIMATES
The Company considers its most significant accounting estimates to be those applied to claims and
claim adjustment expense reserves and related reinsurance recoverables, investment valuation and
impairments, and goodwill impairments.
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